[Cite as Sapienza v. Material Eng. & Technical Support Servs. Corp., 2011-Ohio-3559.]
COURT OF APPEALS DELAWARE COUNTY, OHIO FIFTH APPELLATE DISTRICT
RICHARD SAPIENZA : JUDGES: : Hon. Sheila G. Farmer, P.J. Plaintiff-Appellant : Hon. John W. Wise, J. : Hon. Julie A. Edwards, J. -vs- : : MATERIAL ENGINEERING AND : TECHNICAL SUPPORT SERVICES : Case No. 10CAE110092 CORPORATION, ET AL. : : Defendants-Appellees : OPINION
CHARACTER OF PROCEEDING: Appeal from the Court of Common Pleas, Case No. 10CVH081164
JUDGMENT: Reversed
DATE OF JUDGMENT ENTRY: July 15, 2011
APPEARANCES:
For Plaintiff-Appellant For Defendants-Appellees
MICHAEL G. LONG MARION H. LITTLE, JR. WILLIAM D. KLOSS, JR. MATTHEW S. ZEIGER ROBERT J. KRUMMEN 41 South High Street 52 East Gay Street Suite 3500 P.O. Box 1008 Columbus, OH 43215 Columbus, OH 43216-1008 [Cite as Sapienza v. Material Eng. & Technical Support Servs. Corp., 2011-Ohio-3559.]
Farmer, P.J.
{¶1} Materials Engineering and Technical Support Services Corporation
(hereinafter "METSS") is an Ohio corporation with its principal office in Delaware
County, Ohio. Appellant, Richard Sapienza, and appellee, Richard Heater, are the only
directors and shareholders of METSS, each owning a 50% share of the corporation.
Appellant resides in New York, developing technologies which the company would then
market commercially. Appellee resides in Delaware County and manages the day-to-
day operations of METSS.
{¶2} Appellee received information that appellant was diverting opportunities
from METSS by consulting with companies other than METSS, including several
corporations in which appellant held an ownership interest. Meanwhile, METSS was
the sole member of Geo-Tech Polymers, LLC, a limited liability company. A
disagreement arose between appellant and appellee over Geo-Tech which led to
appellant divesting his interest in Geo-Tech. Following his divestment, appellant
believed there were financial irregularities between Geo-Tech and METSS, with
appellee diverting METSS assets to the insolvent Geo-Tech.
{¶3} On February 2, 2010, METSS filed an action against appellant in the Court
of Common Pleas of Franklin County, Ohio, alleging breach of fiduciary duties, including
misappropriation of corporate opportunities. On the same day, appellee fired appellant
from his employment at METSS. Appellant filed a counterclaim seeking the dissolution
of the corporation. On August 17, 2010, the Franklin County court dismissed the
dissolution claim from the action. Delaware County Case No. 10CAE110092 3
{¶4} Following the filing of the Franklin County action, appellant scheduled
three special shareholders meetings of METSS – the first on March 2, 2010; the second
on March 18, 2010; and the third on April 14, 2010. Appellee did not appear, thereby
preventing a quorum and any business from being transacted.
{¶5} An annual shareholders meeting was held on May 3, 2010 wherein
appellant and appellee re-elected themselves to the board of directors. Upon
considering various resolutions, the two did not agree on a single one. Appellant voted
for a resolution dissolving the corporation while appellee voted against the resolution.
Appellee removed the resolutions dealing with the election of corporate officers from the
shareholders meeting agenda because the resolutions were to be heard during the
board of directors meeting which was to be held immediately following the shareholders
meeting. Before any business could be discussed at the board of directors meeting,
appellee left. The election of corporate officers never took place.
{¶6} On August 5, 2010, appellant filed the instant action against appellee and
METSS seeking dissolution of the corporation. He also filed a motion for appointment
of a receiver and a motion to stay the Franklin County action. On September 10, 2010,
appellees filed a motion for summary judgment. A non-evidentiary hearing was held on
September 15, 2010. The trial court denied appellant's motion to stay the Franklin
County action, and directed the matter to mediation. The remaining issues were
scheduled to be heard on November 8, 2010.
{¶7} On October 25, 2010, appellant filed a cross-motion for summary
judgment. By judgment entry filed October 26, 2010, the trial court granted appellees'
motion for summary judgment and dismissed the complaint for dissolution. Delaware County Case No. 10CAE110092 4
{¶8} Appellant filed an appeal and this matter is now before this court for
consideration. Assignments of error are as follows:
I
{¶9} "THE TRIAL COURT ERRED AS A MATTER OF LAW BY FAILING TO
JUDICIALLY DISSOLVE THE CORPORATION PURSUANT TO R.C. 1701.91(A)(4) IN
THE FACE OF UNDISPUTED EVIDENCE THAT THE PARTIES ARE DEADLOCKED
REGARDING THE CONTINUED EXISTENCE OF THE CORPORATION."
II
{¶10} "THE TRIAL COURT ERRED AS A MATTER OF LAW BY
CONSIDERING EVIDENCE NOT RELEVANT TO THE SPECIAL STATUTORY
PROCEEDING OF A JUDICIAL DISSOLUTION PURSUANT TO R.C. 1701.91(A)(4)."
III
{¶11} "IF THERE IS ANY DISPUTE AS TO THE EXISTENCE OF DEADLOCK,
THE TRIAL COURT ERRED IN AWARDING SUMMARY JUDGMENT TO
DEFENDANT-APPELLEE MATERIAL ENGINEERING AND TECHNICAL SUPPORT
SERVICES CORPORATION ('APPELLEE' OR 'METSS')."
IV
{¶12} "THE TRIAL COURT ERRED BY AWARDING SUMMARY JUDGMENT
TO METSS BASED ON A DEFENSE THAT REQUIRES THE ADJUDICATION OF
GENUINE ISSUES OF MATERIAL FACT – SPECIFICALLY QUESTIONS OF
MATERIAL FACT OVER WHICH THE TRIAL COURT HAD NO JURISDICTION TO
DECIDE BECAUSE THOSE ISSUES ARE BEFORE THE FRANKLIN COUNTY
COURT OF COMMON PLEAS, OHIO, IN CASE NO. 10 CVH-02-1636." Delaware County Case No. 10CAE110092 5
V
{¶13} "THE TRIAL COURT ERRED AS A MATTER OF LAW BY AWARDING
SUMMARY JUDGMENT TO DEFENDANT-APPELLEE METSS BASED SOLELY ON
THE FACT THAT PLAINTIFF-APPELLANT DR. RICHARD SAPIENZA ('APPELLANT'
OR 'SAPIENZA') FAILED TO RESPOND TO METSS’S SUMMARY JUDGMENT
MOTION WITHIN 14 DAYS."
I, III
{¶14} We address these assignments of error together as they both challenge
the trial court's granting of summary judgment to appellees and failure to judicially
dissolve the corporation.
{¶15} At the outset, we note that while couched in the context of a Civ.R. 56
summary judgment proceeding, this is not the type of case that would go forward with a
full trial. It is the practice of Ohio courts to decide the issue of corporate dissolution by
means of an evidentiary hearing rather than a full trial. Callicoat v. Callicoat (1994), 73
Ohio Misc.2d 38, citing Hunt v. Kegerreis (November 8, 1979), Monroe App. No. 523;
Sergakis v. White (October 2, 1984), Jefferson App. No. 83-J-13. Because each party
filed motions for summary judgment, it appears they tacitly agreed to allow the trial court
to decide the issue based on the undisputed facts.
{¶16} R.C. 1701.91 governs judicial dissolution and provides the following in
pertinent part:
{¶17} "(A) A corporation may be dissolved judicially and its affairs wound up:
{¶18} "(4) By an order of the court of common pleas of the county in this state in
which the corporation has its principal office, in an action brought by one-half of the Delaware County Case No. 10CAE110092 6
directors when there is an even number of directors or by the holders of shares entitling
them to exercise one-half of the voting power, when it is established that the corporation
has an even number of directors who are deadlocked in the management of the
corporate affairs and the shareholders are unable to break the deadlock, or when it is
established that the corporation has an uneven number of directors and that the
shareholders are deadlocked in voting power and unable to agree upon or vote for the
election of directors as successors to directors whose terms normally would expire upon
the election of their successors. Under these circumstances, dissolution of the
corporation shall not be denied on the ground that the corporation is solvent or on the
ground that the business of the corporation has been or could be conducted at a profit.
{¶19} "(D) After a hearing had upon such notice as the court may direct to be
given to all parties to the proceeding and to any other parties in interest designated by
the court, a final order based either upon the evidence, or upon the report of the special
master commissioner if one has been appointed, shall be made dissolving the
corporation or dismissing the complaint.***"
{¶20} Because R.C. 1701.91(A)(4) involves an analysis of the facts presented
by the complaining shareholders and directors, our standard of review is essentially a
sufficiency of the evidence standard.
{¶21} Appellant argues the uncontroverted facts establish a deadlock exists
between the parties, each owning a 50% interest in the corporation. In support of this
proposition, appellant cites to the May 3, 2010 annual shareholders meeting. At this
meeting, various resolutions were considered wherein the parties did not agree,
including a resolution for a forensic audit of METSS and the appointment of a receiver Delaware County Case No. 10CAE110092 7
for METSS. May 3, 2010 Shareholders Meeting T. at 7-8. Another resolution was
presented to dissolve the corporation with appellant voting for and appellee voting
against. Id. at 8. Resolutions relative to other litigation, to the removal of appellant as
an employee, and to make a monetary distribution to the shareholders for fiscal year
2009 were split for and against. Id. at 8-11.
{¶22} The shareholders meeting was adjourned and appellee immediately called
a board of directors meeting and refused to entertain any issues and adjourned the
meeting. Id. at 12-13.
{¶23} Appellant attempted to call a shareholders meeting on September 1, 2010,
but appellee refused to participate. September 1, 2010 Shareholders Meeting T. at 6.
A board of directors meeting was held immediately thereafter wherein appellee, as
chair, left. Id. Appellant read into the record the reasons for the meeting, including
three offers to purchase the corporation. Id. at 7-8. One resolution called for the filing
of criminal charges against appellee for the misappropriation of funds from METSS to
Geo-Tech. Id. at 12-13.
{¶24} Previously, three other special shareholders meetings were called by
appellant and appellee failed to participate resulting in the lack of a quorum (March 2
and 18, 2010, and April 14, 2010).
{¶25} It is uncontested that appellant and appellee are each 50% shareholders
of the corporation. Appellee runs and manages the day-to-day activity of the
corporation. Appellant alleges financial misconduct by appellee in his ownership of
GeoTech and his failure to fulfill the obligations to METSS as memorialized in a
Memorandum of Understanding dated November 1, 2005, including the repayment of Delaware County Case No. 10CAE110092 8
loans, the payment of accounts receivable, and the payment of rent by GeoTech to
METSS. Appellee alleges appellant has violated his duty to the corporation by
engaging in outside activities. As a result, appellee as CEO terminated appellant's
employment at METSS and appellant was sued by his own corporation.
{¶26} During appellee's deposition, he testified that he saw no basis and had no
desire to dissolve the corporation while acknowledging that appellant sought dissolution.
Heater depo. at 146-147. Appellee argues the day-to-day activity of the corporation is
on-going and despite the lack of cooperation in the shareholders meetings, dissolution
is not warranted. See, Appellees' Motion for Summary Judgment filed September 10,
2010.
{¶27} It is clear from the record that the issues of dissolution and sale of the
corporation to another have been stonewalled by appellee in his failure to attend the
three special shareholders meetings and his vote against dissolution at the May 3, 2010
annual shareholders meeting. In fact, during the operational arm of the corporation, the
board of directors meeting which appellee called, appellee immediately adjourned and
left.
{¶28} There is no doubt that the parties are in complete deadlock. One party
wishes to end the corporation while the other wishes to continue on. Although the day-
to-day activities are still happening, the governance of the corporation is at a standstill.
{¶29} Upon review, we find sufficient evidence in the record of an actual
deadlock of the corporation. We find judicial dissolution to be mandated by the clear
language of R.C. 1701.91.
{¶30} Assignments of Error I and III are granted. Delaware County Case No. 10CAE110092 9
II, IV, V
{¶31} Based upon our decision in the previous assignments, these assignments
of error are moot.
{¶32} The judgment of the Court of Common Pleas of Delaware County, Ohio is
hereby reversed.
By Farmer, P.J.
Wise, J. concurs.
Edwards, J. dissents.
_s/ Sheila G. Farmer____________________
s/ John W. Wise________________________
_____________________________________
JUDGES
SGF/db 629 Delaware County Case No. 10CAE110092 10
EDWARDS, J., DISSENTING OPINION
{¶33} I respectfully dissent from the majority opinion.
{¶34} R.C. 1701.91 provides in pertinent part:
{¶35} “(A) A corporation may be dissolved judicially and its affairs wound up:
{¶36} “(4) By an order of the court of common pleas of the county in this state in
which the corporation has its principal office, in an action brought by one-half of the
directors when there is an even number of directors or by the holders of shares entitling
them to exercise one-half of the voting power, when it is established that the corporation
has an even number of directors who are deadlocked in the management of the
corporate affairs and the shareholders are unable to break the deadlock, or when it is
established that the corporation has an uneven number of directors and that the
shareholders are deadlocked in voting power and unable to agree upon or vote for the
election of directors as successors to directors whose terms normally would expire upon
the election of their successors. Under these circumstances, dissolution of the
corporation shall not be denied on the ground that the corporation is solvent or on the
ground that the business of the corporation has been or could be conducted at a profit.
{¶37} “(D) After a hearing had upon such notice as the court may direct to be
given to all parties to the proceeding and to any other parties in interest designated by
the court, a final order based either upon the evidence, or upon the report of the special
master commissioner if one has been appointed, shall be made dissolving the
corporation or dismissing the complaint. . . .”
{¶38} I would find that based on the language of this statute, the court has
discretion to grant or deny dissolution even where there is evidence of deadlock. Delaware County Case No. 10CAE110092 11
{¶39} The Ohio Supreme Court has discussed the issue of statutory use of the
words “may” and “shall” in Dorrian v. Scioto Conservancy Dist. (1971), 27 Ohio St.2d
102, 107-108, 271 N.E.2d 834, 837-838:
{¶40} “The character of a statute, as mandatory or permissive, is commonly
determined by the manner in which particular terms used therein are construed.
{¶41} “In determining whether a statute is mandatory or permissive, it is often
necessary, as in this case, to trace its use of the terms ‘may’ and ‘shall.’
{¶42} “The statutory use of the word ‘may’ is generally construed to make the
provision in which it is contained optional, permissive, or discretionary (Dennison v.
Dennison (1956), 165 Ohio St. 146, 134 N.E.2d 574), at least where there is nothing in
the language or in the sense or policy of the provision to require an unusual
interpretation (State ex rel. John Tague Post v. Klinger (1926), 114 Ohio St. 212, 151
N.E. 47).
{¶43} “The word ‘shall’ is usually interpreted to make the provision in which it is
contained mandatory (Dennison v. Dennison, supra), especially if frequently repeated
(Cleveland Ry. Co. v. Brescia (1919), 100 Ohio St. 267, 126 N.E. 51).
{¶44} “Ordinarily, the words ‘shall’ and ‘may,’ when used in statutes, are not
used interchangeably or synonymously. State ex rel. Wendling Bros. Co. v. Board of
Edn. (1933), 127 Ohio St. 336, 188 N.E. 566.
{¶45} “However, in order to serve the basic aim of construction of a statute-to
arrive at and give effect of the intent of the General Assembly-it is sometimes necessary
to give to the words ‘may’ and ‘shall’ as used in a statute, meanings different from those
given them in ordinary usage (State v. Budd (1901), 65 Ohio St. 1, 60 N.E. 988; State Delaware County Case No. 10CAE110092 12
ex rel. Myers v. Board of Edn. (1917), 95 Ohio St. 367, 116 N.E. 516), and one may be
construed to have the meaning of the other (State v. Budd, supra; State ex rel. Myers v.
Board of Edn., supra; Gallman v. Board of County Commrs. (1953), 159 Ohio St. 253,
112 N.E.2d 38).
{¶46} “But when this construction is necessary, the intention of the General
Assembly that they shall be so construed must clearly appear (General Electric Co. v.
International Union (1952), 93 Ohio App. 139, 108 N.E.2d 211), from a general view of
the statute under consideration (State v. Budd, supra; State ex rel. Myers v. Board of
Edn., supra), as where the manifest sense and intent of the statute require the one to be
substituted for the other (State ex rel. Mitman v. Greene County (1916), 94 Ohio St.
296, 113 N.E. 831; State ex rel. Methodist Children's Home v. Board of Edn. (1922),
105 Ohio St. 438, 138 N.E. 865).
{¶47} “As Judge Stewart of this court said in Dennison v. Dennison, supra:
‘Although it is true that in some instances the word, ‘may,’ must be construed to mean
‘shall,’ and ‘shall’ must be construed to mean ‘may,’ in such cases the intention that they
shall be so construed must clearly appear. Ordinarily, the word ‘shall’ is a mandatory
one, whereas ‘may’ denotes the granting of discretion.'”
{¶48} In the instant statute, I do not find that the General Assembly clearly
intended that “may” be interpreted as “shall.” In subsection (D), the legislature used the
word “shall” to direct the trial court to issue a final order either dissolving the corporation
or dismissing the complaint. By the use of both “may” and “shall” in the same statute, it
would appear the General Assembly intended the words to be given their ordinary
meaning. Delaware County Case No. 10CAE110092 13
{¶49} I would therefore find that our standard of review is whether the court
abused its discretion in denying judicial dissolution. Appellant’s verified complaint
demonstrates that the parties were deadlocked on the issue of dissolution of the
corporation and also had failed to elect directors after Heater walked out of a meeting.
However, there was evidence that the parties were not hopelessly deadlocked. The
evidence demonstrates that the parties were both willing to sell the company. Appellant
had no involvement in the day-to-day management of the business, and the company
continued to operate in the usual manner in spite of the obvious animosity between
appellant and Heater. The meetings which appellant claims demonstrate deadlock
were called by appellant after he had been sued by METSS for breach of fiduciary duty
and the court could have determined that he was deliberately attempting to create
deadlock for the purpose of dissolving the corporation. In his deposition testimony,
appellant cited three reasons for wanting to dissolve the corporation, none of which was
an inability to operate the company due to deadlock:
{¶50} “Q. And you’re seeking to dissolve METSS even though you’ve made 95
percent of your entire income over your time at METSS through METSS?
{¶51} “A. Yes.
{¶52} “Q. And you’re willing to dissolve the company and put all those families
out of work?
{¶53} “A. Yes.
{¶54} “Q. Why?
{¶55} “A. I told you, I have three reasons. The first one is I’m not involved in the
management or the operations of the company. Two, my partner’s actually sued me to Delaware County Case No. 10CAE110092 14
say that I don’t work and don’t do things for the company. And, three, my partner is a
crook. So those are all very, very good reasons. Three wonderful reasons right there to
dissolve the company, because I don’t need it.” Sapienza Deposition, p. 103.
{¶56} By his own admission, appellant was not involved in the day-to-day
management or operations of the business, and, therefore, his deadlock with Heater on
some issues did not extend to how the company was managed. As there was some
evidence that the parties were not completely deadlocked and/or such deadlock was
deliberately manufactured by appellant because he was angry over the breach of
fiduciary duty suit and simply trying to get even with Heater, I would find that the court
did not abuse its discretion in denying dissolution.
Julie A. Edwards________________
Judge Julie A. Edwards [Cite as Sapienza v. Material Eng. & Technical Support Servs. Corp., 2011-Ohio-3559.]
IN THE COURT OF APPEALS FOR DELAWARE COUNTY, OHIO
FIFTH APPELLATE DISTRICT
RICHARD SAPIENZA : : Plaintiff-Appellant : : -vs- : : JUDGMENT ENTRY MATERIALS ENGINEERING AND : TECHNICAL SUPPORT SERVICES : CORPORATION, ET AL. : : Defendants-Appellees : CASE NO. 10CAE110092
For the reasons stated in our accompanying Memorandum-Opinion on file, the
judgment of the Court of Common Pleas of Delaware County, Ohio is reversed. Costs
to appellees.
_s/ Sheila G. Farmer__________________
s/ John W. Wise_____________________
_________________________________